« PreviousNext »

EXECUTIVE SUMMARY

The growth in local transportation needs has outpaced the availability of funding from traditional State and Federal sources, leading to a growing funding gap. Value capture funding techniques have helped communities throughout the country narrow this funding gap while accelerating the delivery of critically needed transportation projects. Value capture techniques rely on increases in property values, business activity, and economic growth linked to transportation infrastructure to help fund current or future transportation improvements ⁽¹⁾.

Transportation reinvestment zones (TRZs) are a value capture technique that relies on the principles of tax increment financing (TIF) to help pay for transportation projects. A TRZ is very similar to a TIF district in that a TRZ is also a TIF mechanism used to set aside property and sales tax increments. However, a TRZ is explicitly dedicated to transportation improvements in almost every transportation mode. TIF districts are used to pay for a wider range of infrastructure improvements (e.g., transportation improvements, utilities, landscaping, streetscaping) and other development projects within a district (e.g., affordable housing, convention centers, hotels). Additionally, because TRZs are easier to create and have a less complex governance structure than TIF districts, TRZs have become a popular tool for transportation funding in Texas⁽³⁾. TRZs allow local governments with taxing authority to set aside local funds generated by property and/or sales tax increments within the zone to fund transportation improvements. Transportation improvements in turn enhance mobility and promote economic development through land development and increased business activity, both of which boost property and sales tax revenues not only within the zone but well beyond its boundaries, benefiting the community at large.

Research has documented that the impacts of transportation projects on real property values concentrate in regions within 1 to 2 miles from the centerline of a corridor, which is well beyond the boundaries of a typical TRZ⁽⁴⁾. This means that while only a portion of the tax increment revenue is temporarily dedicated to fund the transportation improvement, the economic development that is spurred by the project and takes place outside the zone yields a tax increment that can be invested in other community priorities within the zone or across the entire jurisdiction.

TRZs are generally not intended to serve as the sole funding mechanism to deliver a transportation improvement⁽²⁾. Rather, TRZ revenues are often used as a complementary funding source to help close the funding gap, meet local match when required, or to pay for other project development costs. TRZs are currently available to local governments in Texas and Utah. Texas authorized TRZs in 2007, and the first TRZs were created in 2010. This primer provides an overview of basic TRZ concepts and a step-by-step description of their implementation process based on the current legal frameworks in Texas and Utah.ⁱ

In Texas, the law allows municipalities, counties, and port authorities to create TRZs to fund transportation improvements for all modes, including roads and bridges, passenger or freight rail facilities, certain airport facilities, pedestrian and bicycle facilities, parking garages, transit systems, ferries, and port facilities. On the other hand, Utah legislation authorizes the creation of TRZs by two or more public agencies, at least one of which must have land use authority over the area where the TRZ will be created. Utah law is very flexible in that it allows the local governments to define the transportation need and proposed improvement that will be funded through the TRZ mechanism.

Finally, like other transportation funding and financing techniques, TRZs offer opportunities that local governments can take advantage of and challenges they may need to overcome. This primer identifies four main areas of opportunity for local governments using TRZs:

1. Generation of funding without increasing tax rates or creating a new tax
2. The ability to accelerate, or even enable, the delivery of critical projects
3. Enhanced interagency collaboration to leverage different sources of funds
4. Promotion of equity and economic efficiency in project funding through the “beneficiary pays principle” (that is, those who benefit most from infrastructure investments pay more)^{(1) ii}

There are three main areas where challenges may emerge:

1. A TRZ might be perceived as diverting resources needed to sustain other public services.
2. The uncertainty associated with real estate markets may increase the cost of borrowing from private capital markets or from Federal low-interest rate loan programs, such as the Transportation Infrastructure Finance and Innovation Act, Railroad Rehabilitation & Improvement Financing, and Private Activity Bonds.
3. For Texas counties, there could be potential legal challenges to their ability to use TRZ revenues to repay debt acquired to fund a transportation project.

Footnotes

ⁱ The legal framework for the creation of TRZs in Texas is laid out in the Texas Transportation Code Sections 222.105–111 and includes relatively detailed requirements for local governments to pursue their implementation. Utah enacted its TRZ enabling legislation in 2018 and amended it in 2019. To date, no TRZs have been created in Utah. The provisions governing the legal framework for TRZs in the State of Utah are contained in Section 11-13-227 of the Utah Code. The implementation guidance included in it, however, is relatively limited compared to Texas. Because the implementation guidance and experience with TRZs in Utah is limited, the information presented in this primer is largely based on the legal requirements and experience from the State of Texas. Nevertheless, to the extent guidance is available, relevant Utah-specific differences are highlighted throughout the document.

ⁱⁱ This primer refers to “equity” as promoting fairness among users and taxpayers, and “efficiency” as the efficient use of resources.

« PreviousNext »